A new regulatory regime awaits brokers next year

By Mark Greenwood, director of compliance services, SimplyBiz Group

The Senior Managers and Certification Regime (SM&CR) comes into effect in December 2019. The purpose of this new regime (which replaces the existing approved persons regime) can be seen in its core objectives, which are to:

• restore confidence in the financial services industry
• increase individual accountability, in particular at the senior management level
• raise the standards of governance
• ensure firms and internal teams clearly understand and can demonstrate where their responsibilities lie
• evoke a cultural change within firms whereby internal teams take personal responsibility for their actions.

In this update, I’d like to focus on some of the key considerations that firms will need to consider as well as the responsibilities and duties that will come into force when it arrives.

Prior to December 2019, firms will need to ensure they have the right people in the right roles when the FCA ‘maps across’ the firm’s senior managers into the new regime. Individuals involved will include the following:

• Directors - currently CF1 and to become executive director SMF3
• Chief Executive - currently CF3 to become SMF1
• Partners - currently CF4 to become SMF27

• Chair - non-executive director - only the chairperson needs to be registered where there is a number of NEDs, otherwise NEDs do not require registering as a senior manager. This is a new role to become SMF9.
• Limited scope function - currently CF8 to become SMF 29

Firms need take no action in relation to the ‘mapped across’ exercise as the FCA will automatically carry this out. It is important that firms ensure the right people are registered to the roles above before this happens. This should be checked against the details of the firm on the Financial Services Register.

Firms will also need to identify who their certified persons are (this will not apply to sole traders with no other employees). Unless the person is a senior manager, they will not be registered with the FCA. A role that may be applicable to a certified person could be where they are responsible for a large business unit, although this would be unlikely within a small firm.

All senior managers and certified persons must be aware of, and trained on, the new code of conduct rules that will apply specifically to their roles before implementation of the new regime.

SM&CR implementation and beyond

Prescribed responsibilities do not apply to senior managers within a limited scope firm.

However, each senior manager must have a statement of responsibilities, which is a single document held by each senior manager that sets out what that manager is responsible and accountable for, and while this will be the FCA’s lead, it will always be specific to the firm.

Firms that have senior managers and certified persons appointed before 9^th December 2019 must assess and demonstrate their fitness and propriety at least annually (before 9^th December 2020), which will include an assessment of:

• honesty, integrity and reputation
• competence under any T&C requirements
• financial soundness

All other staff (involved in financial services aspects of the business) must be made aware of, and trained on, the new code of conduct rules. Details of any employee breaching the conduct rules must be notified to the FCA.

Part of demonstrating competence under fitness and propriety will mean that firms must hold evidence of knowledge and skills through testing, file reviews, skills assessments and ongoing CPD, for example.

Is there anything else to consider?

I expect further guidance to be published by the regulator in the lead up to the new regime. If you take compliance support through FIBA, the team will provide further support, guidance and templates to help you implement this regime into your firm. We will also provide further information on:

• regulatory references
• criminal record checks
• how to deal with new joiners and leavers
• how notifications should be submitted
• changes to the applications for individuals

To discuss the topic and the ways we can support your business through this transition, please contact a member of the team on 0207 033 8899